Allright, I think I figured it out. Try setting your dpi to higher setting than you will finish with - 300 dpi is what I usually use - and now I understand why....
Here is what is happening. The text is too big for the number of pixels you have. Here is an example you can try, and maybe will clarify what is happening.
Start a new image. Set the dpi to 72, and make the image size like 2X2. Go into your new image and create some text (like "abc"

and set the size to 24 pt. Now zoom in pretty tight on it. Notice how it looks jaggy. Now if you increase the text size, say to 150 pt, it looks alot less jaggy. Now decrease the size to say 14 pt. Starts looking a little jaggy. Now resize to 8 pt. Almost illegible. The reason is you are trying to fit too muchinfo into too small of a space. In other words, you are trying to display an image that requires 18 blocks to display, and only allowing the program to use 5 blocks to display it. So what is happening is it is rendering the iimage to a size it can handle, which in this case, is too little resolution. So the way to overcome this is to start your same 2X2 image at say 300 or so dpi. If you try 150 dpi, you will notice a definate improvement, but still get some jaggys. The smaller the final text, the higher the resolution required to create the image.
Before you panic when you see a one line text image at 1.2MB, there is hope for smaller sized graphics. Once the image is set the way you like (i.e. shadows, perspctive, blends and blurs) then resample the image. For web output I have better luck with 96 dpi on complex images. For simple, one color text, 72 dpi is ok. One more thing ought to be mentioned here. The color choice for your text makes a big difference too. If you are trying to display small legible button type text, use as pure a color as you can find. By pure I mean it doesn't require too many colors to compose the color. If you look closely at your zoomed in image, you'll see a few different colors that are making up the perceived color. The more colors required to compose that color, the more you will lose as the image is resampled.
Hope this clarifies things. Start big, end small. If you find 300dpi is not solving your problem, try 600. You'll eventually find a size that works for you. Also, it should be noted that this will preserve most of your effects you are trying to accomplish. There is going to be a limit that you reach, no matter how big you start, you will hit a limit that the image just loses too much in the translation. If that happens, you may have to settle for a physically larger image size (say 4X4 as opposed to 2X2) but then you can shrink the dpi count to a lower number. Then when you insert the image into your project, force the image to the smaller size. This should get you rolling in the right direction.
Russ